US SEC EXCLUSIVE to examine companies’ digital engagement practices as investor concerns grow

WASHINGTON, Aug. 24 (Reuters) – The U.S. Securities and Exchange Commission (SEC) will seek information on whether digital customer engagement innovations used by financial companies should be governed by existing rules or may need new ones, commission chairman Gary Gensler told Reuters.

While the SEC’s thinking on the subject is at an “early stage,” its rules may need to be updated to explain a revolution led by artificial intelligence in predictive analytics, differential marketing, and indications of behavior designed to optimize customer engagement, he said.

The SEC plans to launch a broad consultation in the coming days that could have major ramifications for retail brokers, wealth managers and theft advisors, who are increasingly using tools to drive customers to higher-income products.

“We are in a time of transformation. I think data analysis and AI can bring a lot of positive aspects, but it means we should look back and think about what this means for the user interface, user interaction, equity and bias, ”he said. Gensler. “What does it mean about rules written in an earlier era?”

The consultation was triggered in part by the January-January meme saga, which led to an intense examination of retail broker practices, including “gamification,” game-like indications designed to optimize customer engagement. Read more

Gensler told Congress in a May hearing about the saga that the SEC would solicit public input on gamification.

He now says the agency should examine the range of digital engagement practices. While these characteristics may increase consumer access to capital markets, they may also expose them to higher risks.

Some indications of behavior could be considered investment advice and could be regulated as such, he added.

“These digital interaction practices raise questions about when marketing becomes advice, when it’s a recommendation, what is the duty to be careful?” said Gensler, who was previously a professor at MIT, where he taught financial technology classes.

Gensler echoed a growing concern among regulators that these tools could perpetuate discriminatory behavior. With some marketing practices, for example, companies customize product offerings and prices according to customer preferences and profile.

“The data that comes to these data analytics, whether machine learning or deep learning, will represent the biases of society as they already exist,” he said.

SPACES

Since becoming president of the SEC in April, Gensler has set an ambitious agenda that pursues new disclosures related to climate change and the workforce, curbing the boom of special-purpose acquisition companies, or SPAC, and increasing control of the American lists of Chinese companies.

Gensler said the new SPAC rules enacted by the SEC would improve disclosure, especially in terms of transaction costs and how later-stage investors would be diluted.

Wall Street’s biggest gold rush in recent years, SPACs are listed companies that raise funds to acquire a private company and make it public, allowing targets to dodge the most onerous regulatory checks of an offer. initial public.

But some critics say later-phase investors are being ripped off by SPAC sponsors, who are also early investors.

“Think about the cost at all stages: at the beginning, the sponsor’s fees, the subscription fees, the attorneys’ fees. It all adds up to a very intense and costly process,” Gensler said.

Reports by Katanga Johnson and Chris Prentice; Written by Michelle Price; Edited by Sam Holmes

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